On February 26, 2025, the United States Supreme Court issued its opinion in Dewberry Group, Inc v. Dewberry Engineers, Inc. In doing so the Court reaffirmed the legal protections afforded to separately formed, organized and governed corporations. The case raised the question of whether a court could order disgorgement of profits for trademark infringement from the unnamed corporate affiliates of a defendant corporation because the named defendant corporation’s profits were inadequate to satisfy the amount of a judgment for infringement. In reversing the lower court’s decision, the Supreme Court ruled the lower court could not order disgorgement of profits earned by the unnamed corporate affiliates of the named defendant. The court found the defendant’s profits are the defendant’s profits, not its plus its affiliates’.
Justice Kagan’s decision explained that the Court expressed no opinion on whether or how the lower courts could have used other provisions in the Lanham Act – the “just-sum” provision – to fashion a different damage award; whether or how the courts could have looked behind the corporate defendant’s tax and accounting records to evaluate its true financial gain without relying on the “just sum” provision; and whether or how veil-piercing under an alter ego theory of liability could be a viable option to impose broader liability and change the damage award.
The Lower Courts Ruled for the Plaintiffs and Awarded $42 Million in Damages Based on All of the Defendant’s Corporate Affiliates
Dewberry involved two similarly named real estate development companies that had been embroiled in trademark litigation for many decades. The most recent dispute arose from Dewberry Group’s (“Group”) alleged violation of a 2007 confidential settlement agreement that acknowledged Dewberry Engineer’s (“Engineer”) superior claim to the “Dewberry” trademark. The Federal District Court for the Eastern District of Virginia granted Engineer’s summary judgment motion, finding that the Group engaged in willful and bad faith infringement of Engineer’s service mark.
While the Group did not contest the liability ruling on the merits, it challenged the District Court’s $43 million profit disgorgement award. The District Court’s damage award ordered the Group to answer for the profits of its commonly owned but legally distinct affiliates because the Group itself generated no net profits, and thus did not have the money to pay the damages. Since the Group, practically speaking, generated all of the revenue reported by these affiliates, the District Court treated the Group and its affiliates as a single corporate entity. On appeal, a divided United States Fourth Circuit Court of Appeal affirmed the District Court’s decision.
The Supreme Court Reversed the Lower Courts’ Decisions and Held Only the Named Defendant Could be Liable for Damages
Before the U.S. Supreme Court, the Group argued the Lanham Act only allows the disgorgement of profits from the named defendant, not its affiliates. The Engineers argued the award was proper under the “just-sum” provision of the Lanham Act, which provides that, where the “amount of recovery based on profits is . . . inadequate” a court may “enter judgment for such sum as the court shall find to be just.”
Justice Kagan delivered the Court’s opinion, which unanimously vacated the judgment awarded in the District Court, and remanded the case for further proceedings. The Court held that under section 1117(a) of the Lanham Act the lower court could only award profits properly ascribable to the defendant itself not the unnamed affiliates. The Court’s reasoning was twofold.
First, the Lanham Act uses the phrase “defendant’s profits”, and because the term “defendant” is not specially defined in the statute or otherwise it “bears its usual legal meaning” as “the party against whom relief or recovery is sought.” That party is the named defendant, the Dewberry Group, not its unnamed affiliates.
Second, since the Engineer failed to invoke any exception to the long settled rule of the separate legal nature of corporations, the requirement to respect each corporations separate rights and obligations remained. As a result, because the Engineer chose not to name the affiliates as defendants or attempt to pierce the Group’s corporate veil the District Court could not consolidate the unnamed corporate affiliates together with the named corporate defendant. The Supreme Court expressly did not rule on the issue of whether the damage award would be proper under the Lanham Act’s “just-sum” provision or whether the alternative theory of alter ego liability would have resulted in a different outcome because for some reason those legal theories were not raised by the Engineer in the District Court.
Justice Sotomayor joined in the Court’s opinion, but also wrote a concurring opinion. Her concurrence cautions corporations that even though unnamed affiliate profits cannot be counted as defendant’s profits courts are not required to ignore economic realities or accept clever accounting. For example, if a defendant-entity charges below-market rates for infringing services to affiliates, the affiliates’ profits could be ascribed to that defendant-entity.
Some Take Aways and Unanswered Questions
While the Supreme Court affirmed the traditional rule of respecting the rights and obligations of separate corporations it left a number of questions unaddressed, including (1) whether the statute’s equitable “just-sum” provision could justify a damage award based on the affiliates’ profits, and (2) whether a court can look behind the tax or accounting records of the parent and subsidiary corporations to consider the economic realities of particular transactions to determine who is liable and have to pay the plaintiff damages. These unanswered questions set the stage for a potentially ground breaking remand if those issues are addressed in the District Court. Overall, however, Dewberry provides a useful reminder that Lanham Act plaintiffs must think critically about all potential legal theories and discover information about the organization and financial status of all possible named defendants to maximize the chances of proving liability and recovering all damages that can be proven and awarded in a judgment.
About Finkel Law Group
Finkel Law Group, with offices in San Francisco and Oakland, has almost 30 years of experience representing clients in the defense and prosecution of trademark and service mark claims in Federal Court. When you need intelligent, insightful, conscientious and cost-effective legal counsel to assist your company with an intellectual property disputes, including trademark litigation under the Federal Lanham Act, please contact us at (415) 252-9600, (510) 344-6601 or info@finkellawgroup.com to speak with one of our attorneys.